Thursday, January 29, 2004

P&G looks long term


By Cliff Peale
The Cincinnati Enquirer

With strong financial results and its competitors reeling, Procter & Gamble Co. has the luxury of bolstering parts of its far-flung global operation that might not be growing as fast as it would like.

Next on chairman and chief executive A.G. Lafley's agenda is a review of the Clairol hair-color business in Stamford, Conn.

"That's where I'm heading tomorrow," he told Wall Street investors Wednesday.

Cincinnati-based P&G earned $1.82 billion during the fiscal second quarter ended Dec. 31, up 22 percent from the same period a year ago. Sales increased 20 percent to $13.22 billion. Even before acquisitions and the effect of foreign exchange rates, sales increased 6 percent and volume, or the number of units sold, increased 9 percent.

Earnings per share were 15 percent more than last year, excluding last year's restructuring charges, putting the results at the top end of Wall Street expectations and well above P&G's long-term growth targets.

Procter predicted the results weeks ago, so there was little impact on the stock market. Investors pushed P&G's share price down 56 cents to $98.52 Wednesday.

"Clearly, the stock seems to be hung up on the psychological 3-digit number," said Dan Popowics, equity analyst at Fifth Third Bank, which owns or manages more than 10 million P&G shares. "I think it will get through this in fairly short order."

Each of P&G's global businesses increased both sales and profits for the quarter. Beauty care, which includes brands such as Olay skin care and Pantene shampoo, increased sales 50 percent to $4.49 billion after the $5.7 billion acquisition of German giant Wella AG.

Beauty care profits jumped 34 percent to $681 million.

An early cold and cough season in North America led to strong health care results, with sales up 22 percent to $1.91 billion and profits up 32 percent to $333 million.

During the Webcast with investors before the stock market opened, P&G also said:

• Heavy promotional and pricing activity by competitors including Georgia-Pacific Corp. - maker of Brawny and Quilted Northern - drove up P&G spending on brands including Bounty and Charmin. Higher raw material prices also contributed.

"We can easily shock-absorb these kinds of issues because we have such a diverse lineup," Lafley said. "That puts us in a situation where we really can manage for the long- and mid-term, and not get too caught up in the short-term pricing game."

• It isn't worried about a challenge to its $5.7 billion acquisition of German giant Wella AG by minority shareholders. The shareholders have alleged that P&G is improperly integrating Wella, even though it owns only about 80 percent of total shares, and will present the complaints at a special meeting next week in Germany.

"We believe this event provides no added value to Wella's business," chief financial officer Clayton Daley said, calling the allegations "baseless."

• Big brands continued to grow. Olay skin care, for example, grew its global volume more than 25 percent, compared to the same quarter last year.

• In health care, the growth spread throughout the unit. Personal health care (Prilosec OTC, Vicks), pharmaceuticals (Actonel) and oral care (Crest) each increased volume more than 20 percent in the quarter.


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